BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Martha M. Escutia, Chair
2003-2004 Regular Session
SB 796 S
Senator Dunn B
As Amended April 22, 2003
Hearing Date: April 29, 2003 7
Labor Code 9
CJW 6
SUBJECT
Employment
DESCRIPTION
This bill would allow employees to sue their employers for
civil penalties for employment law violations, and upon
prevailing, to recover costs and attorneys' fees. The bill
is intended to augment the enforcement abilities of the
Labor Commissioner by creating an alternative "private
attorney general" system for labor law enforcement.
This analysis reflects author's amendments to be offered in
Committee.
BACKGROUND
California's Labor Code is enforced by the state Labor and
Workforce Development Agency (LWDA) and its various boards
and departments, which may assess and collect civil
penalties for specified violations of the code. Some Labor
Code sections also provide for criminal sanctions, which
may be obtained through actions by the Attorney General and
other public prosecutors.
In 2001, the Assembly Committee on Labor and Employment
held hearings about the effectiveness and efficiency of the
enforcement of wage and hour laws by the Department of
Industrial Relations (DIR), one of four subdivisions of the
LWDA. The Committee reported that in fiscal year
2001-2002, the Legislature appropriated over $42 million to
(more)
SB 796 (Dunn)
Page 2
the State Labor Commission for the enforcement of over 300
laws under its jurisdiction. The DIR's authorized staff
numbered over 460, making it the largest state labor law
enforcement organization in the country.
Nevertheless, evidence received by the Committee indicated
that the DIR was failing to effectively enforce labor law
violations. Estimates of the size California's
"underground economy" - businesses operating outside the
state's tax and licensing requirements -- ranged from 60 to
140 billion dollars a year, representing a tax loss to the
state of three to six billion dollars annually. Further, a
U.S. Department of Labor study of the garment industry in
Los Angeles, which employs over 100,000 workers, estimated
the existence of over 33,000 serious and ongoing wage
violations by the city's garment industry employers, but
the DIR was currently issuing fewer than 100 wage citations
per year for all industries throughout the state.
As a result of these hearings, the Legislature enacted AB
2985 (Ch. 662, Stats. of 2002), requiring the LWDA to
contract with an independent research organization to study
the enforcement of wage and hour laws, and to identify
state and federal resources that may be utilized to enhance
enforcement. The completed study is to be submitted to the
Legislature by December 31, 2003.
This bill would propose to augment the LWDA's civil
enforcement efforts by allowing employees to sue employers
for civil penalties for labor law violations, and to
collect attorneys' fees and a portion of the penalties upon
prevailing in these actions, as specified below.
CHANGES TO EXISTING LAW
Existing law authorizes the LWDA (comprised of the DIR, the
Employment Development Department, the Agricultural Labor
Relations Board, and the Workforce Investment Board) to
assess and collect civil penalties for violations of the
Labor Code, where specified. [Labor Code Secs. 201 et
seq .]
Existing law authorizes the Attorney General and other
public prosecutors to pursue misdemeanor charges against
violators of specified provisions of the code. [Labor Code
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Page 3
Sec. 215 et seq .]
Existing law authorizes an individual employee to file a
claim with the Labor Commissioner alleging that his or her
employer has violated specified provisions of the code, and
to sue the employer directly for damages, reinstatement,
and other appropriate relief if the Commissioner declines
to bring an action based on the employee's complaint.
[Labor Code Sec. 98.7.]
Existing law further provides that any person acting for
itself, its members, or the general public, may sue to
enjoin any unlawful, unfair, or fraudulent business act or
practice, and to recover restitution and disgorgement of
any profits from the unlawful activity. [Bus. & Profs.
Code Sec. 17200 et seq .]
This bill would provide that any Labor Code violation for
which specific civil penalties have not previously been
established shall be subject to a civil penalty of $100 for
each aggrieved employee per pay period for an initial
violation, and $200 for each aggrieved employee per pay
period for continuing violations. (The penalty would be
$500 per violation for a violator who is not an employer.)
This bill further would provide that, for any Labor Code
violation for which the LWDA does not pursue a complaint,
any aggrieved employee may sue to recover civil penalties in
an action brought on behalf of himself or herself or other
current or former employees.
This bill would define "aggrieved employee" as "any person
employed by the alleged violator within the period covered
by the applicable statute of limitation against whom one or
more of the violations alleged in the action was
committed."
This bill further would provide that an aggrieved employee
who prevails in such an action shall be entitled to an
award of reasonable attorney's fees and costs.
This bill further would provide that any penalties
recovered in an action by an aggrieved employee shall be
distributed as follows: 50 percent to the General Fund, 25
percent to the LWDA for employer education, and 25 percent
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Page 4
to the aggrieved employees. (Penalties recovered against a
violator who is not an employer, which under this bill
could be pursued only by a public prosecutor or the LWDA,
would be divided evenly between the General Fund and the
LWDA.)
This bill further would provide that nothing in this
section shall limit an employee's right to pursue other
remedies available under state or federal law.
This bill further would provide that no action may be
maintained by an aggrieved employee under this section
where the LWDA initiates proceedings against the alleged
violator on the same facts and under the same section or
sections of the Labor Code.
COMMENT
1. Stated need for legislation
The California Labor Federation, co-sponsor, states that
this bill would "attack the underground economy and
enhance our state's revenues" by allowing workers to
crack down on labor violators:
In the last decade, as California has grown to
become one of the world's largest economies, state
government labor law enforcement functions have failed
to keep pace. . . . The state's current inability
to enforce our existing labor laws effectively is due
to inadequate staffing and to the continued growth of
the underground economy. This inability coupled with
our severe state budget shortfall calls for a creative
solution that will help the state crack down on those
who choose to flout our laws.
The California Rural Legal Assistance (CRLA) Foundation,
also a co-sponsor, states that violations of minimum or
overtime wage violations are common, and many other
violations for which only rarely enforced criminal
penalties exist are increasing: For example, "company
store" arrangements in which workers are required to cash
their checks with their employer, for a fee, allegedly
are widespread in the agricultural industry. The CRLA
Foundation notes that the bill's proposed penalty
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Page 5
structure is "nominal" and is based on existing
provisions of the Labor Code.
Protection & Advocacy, Inc., which supports the rights of
people with disabilities, asserts that SB 796 will assist
disabled employees "by providing some mechanism by which
to get an employer to comply with the Labor Code."
2. SB 796 would attach civil penalties to existing
provisions
The sponsors state that many Labor Code provisions are
unenforced because they are punishable only as criminal
misdemeanors, with no civil penalty or other sanction
attached. Since district attorneys tend to direct their
resources to violent crimes and other public priorities,
Labor Code violations rarely result in criminal
investigations and prosecutions.
Accordingly, this bill would attach a civil penalty of
$100 for each aggrieved employee per pay period
(increasing to $200 for each aggrieved employee per pay
period for continuing violations) to any Labor Code
provision that does not already contain a financial
penalty for its violation. The sponsors state that this
proposed penalty is "on the low end" of existing civil
penalties attached to other Labor Code provisions, but
should be significant enough to deter violations.
3. The bill would allow "aggrieved employees" to bring
private actions to recover the civil penalties
The sponsors state that private actions to enforce the
Labor Code are needed because LWDA simply does not have
the resources to pursue all of the labor violations
occurring in the garment industry, agriculture, and other
industries.
Although the Unfair Competition Law (UCL), Section 17200
of the Business & Professions Code, permits private
actions to enjoin unlawful business acts, the sponsors
assert that it is an inadequate tool for correcting Labor
Code violations. First, the UCL only permits private
litigants to obtain injunctive relief and restitution,
which the sponsors say is not a sufficient deterrent to
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Page 6
labor violations. Second, since the UCL does not award
attorneys' fees to a prevailing plaintiff, few aggrieved
employees can afford to bring an action to enjoin the
violations. Finally, since most employees fear they will
be fired or subject to hostile treatment if they file
complaints against their employers, they are discouraged
from bringing UCL actions.
Generally, civil enforcement statutes allow civil
penalties to be recovered only by prosecutors, not by
private litigants. Private plaintiffs who have been
damaged by a statutory violation usually are restricted
to traditional damage suits, or where damages are
difficult to prove, to "statutory damages" in a specified
amount or range. [ See , e.g ., Unruh Civil Rights Act,
Civ. Code Sec. 51 et seq ., allowing statutory damages in
a minimum amount of $4,000 per violation to prevailing
private litigants in actions alleging denial of equal
access or other forms of discrimination.]
In this bill, allowing private recovery of civil
penalties as opposed to statutory damages would allow the
penalty to be dedicated in part to public use (to the
General Fund and the LWDA) instead of being awarded
entirely to a private plaintiff, as would occur with a
damage award. Recovery of civil penalties by private
litigants does have some precedent in existing law: The
Unruh Civil Rights Act allows either the victim of a hate
crime or a public prosecutor to bring an action for a
civil penalty of $25,000 against the perpetrator of the
crime. (Civ. Code Secs. 51.7, 52.)
4. Opponents' concerns
The employer groups opposing the bill argue that SB 796
will encourage private attorneys to "act as vigilantes"
pursuing any and all types of Labor Code violations on
behalf of different employees, and that this incentive
will be increased by allowing employees to recover both
attorneys' fees and a portion of the penalties. A
representative letter states:
There is a major concern that this type of statute
could be abused in a manner similar to the legal
community's abuse of Business and Professions Code
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Section 17200 when it sued thousands of small
businesses for minor violations and demanded
settlements in order to avoid costly litigation.
The California Chamber of Commerce argues that, since the
bill would award attorneys' fees to prevailing employees,
but not to employers when they prevail, SB 796 would clog
already-overburdened courts because there would be no
disincentive to pursue meritless claims.
The California Employment Law Council states that the the
Labor Code contains "innumerable penalty provisions, many
of which would be applicable to minor and inadvertent
actions." Under current law, however, the prospect of
excessive penalties is mitigated by prosecutorial
discretion, which would disappear under SB 796:
If, for example, a large employer inadvertently
omitted a piece of information on a paycheck, a
"private attorney general" could sue for penalties
that could reach staggering amounts if . . . the
inadvertent deletion of information on a paycheck went
on for some time.
5. Sponsors say bill has been drafted to avoid abuse of
private actions
The sponsors are mindful of the recent, well-publicized
allegations of private plaintiff abuse of the UCL, and
have attempted to craft a private right of action that
will not be subject to such abuse. First, unlike the
UCL, this bill would not open private actions up to
persons who suffered no harm from the alleged wrongful
act. Instead, private suits for Labor Code violations
could be brought only by an "aggrieved employee" - an
employee of the alleged violator against whom the alleged
violation was committed. (Labor Code violators who are
not employers would be subject to suit only by the LWDA
or by public prosecutors.)
Second, a private action under this bill would be brought
by the employee "on behalf of himself or herself or
others" - that is, fellow employees also harmed by the
alleged violation - instead of "on behalf of the general
public," as private suits are brought under the UCL.
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Page 8
This would dispense with the issue of res judicata
("finality of the judgment") that is the subject of some
criticism of private UCL actions. An action on behalf
of other aggrieved employees would be final as to those
plaintiffs, and an employer would not have to be
concerned with future suits on the same issues by someone
else "on behalf of the general public."
Third, the proposed civil penalties are relatively low,
most of the penalty recovery would be divided between the
LWDA (25 percent) and the General Fund (50 percent), and
the remaining 25 percent would be divided between all
identified employees aggrieved by the violation, instead
of being retained by a single plaintiff. This
distribution of penalties would discourage any potential
plaintiff from bringing suit over minor violations in
order to collect a "bounty" in civil penalties.
Finally, the bill provides that no private action may be
brought when the LWDA or any of its subdivisions
initiates proceedings to collect penalties on the same
facts and under the same code provisions.
6. Author's amendments
In order to address concerns that the bill might invite
frivolous suits or impose excessive penalties, and
pursuant to discussions between the sponsors and
Committee staff, the author has agreed to accept the
following amendments to clarify the bill's intended scope
of its private right of action and the assessment and
distribution of its civil penalties:
(a) To clarify who would qualify as an "aggrieved
employee" entitled to bring a private action under this
section, the author will define the term as follows (at
page 2, line 38):
"For purposes of this part, an aggrieved employee
means any person employed by the alleged violator
within the period covered by the applicable statute of
limitations against whom one or more of the violations
alleged in the action was committed."
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Page 9
The bill would further be amended to reflect that any
civil penalty
recoverable by the LWDA under existing law may be
recovered through a
civil action "brought by an aggrieved employee on
behalf of himself or
herself or other current or former employees" (at page
2, lines 31-36).
(b) To clarify that civil penalties would be assessed
only with respect to the
number of employees aggrieved by the violation, as
opposed to the total
number of an alleged violator's employees, the author
will amend the bill
to reflect that penalties will be determined "for each
aggrieved employee"
instead of "per employee" (at page 3, lines 7 and 8).
(c) To allay opponents' concerns that res judicata issues
may arise if all known potential plaintiffs are not
included in the private action, the author will amend
the bill as follows (at page 3, lines 11-13):
"An aggrieved employee may recover the civil penalty
described in subdivision (b) in a civil action filed on
behalf of himself or herself or others other current or
former employees for whom evidence of a violation was
developed during the trial or at settlement of the
action ."
(d) To conform its attorney's fees provision with similar
provisions in existing
law, the author will amend the bill to delete the
phrase "in whole or in
part" from the provision allowing attorney's fees to
be awarded to a
prevailing plaintiff (at page 3, lines 13-14).
Support: American Federation of State, County and
Municipal Employees (AFSCME); California Conference
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Page 10
Board of the Amalgamated Transit Union; California
Council of Machinists; California Independent Public
Employees Legislative Council; California State Pipe
Trades Council; California State Association of
Electrical Workers; California Teamsters; Engineers
and Scientists of California, Local 20; Hotel
Employees, Restaurant Employees International Union;
Professional and Technical Engineers, Local 21;
Protection & Advocacy, Inc.; Region 8 States Council
of the United Food & Commercial Workers; Western
States Council of Sheet Metal Workers
Opposition: Associated General Contractors of California;
California Apartment Association; California
Chamber of Commerce; California Employment Law
Council; California Landscape Contractors
Association; California Manufacturers and
Technology Association; Civil Justice Association
of California (CJAC); Construction Employers'
Association; Motion Picture Association of
America; Orange County Business Council
HISTORY
Source: California Labor Federation AFL-CIO; CRLA
Foundation
Related Pending Legislation: None Known
Prior Legislation: AB 2985 (Committee on Labor and
Private Employment) (Ch. 662, Stats. of 2002)
(requires Labor and Workforce Development
Agency to contract with independent research
organization to study most effective ways to
enforce wage and hour laws, and to identify
all available state and federal resources
available for enforcement; completed study to
be submitted to Legislature by December 31,
2003)
Prior Vote: Senate Labor & Industrial Relations Committee
5-3
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